Q2 2023 So-Young International Inc Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by for So Yung's second quarter of the 2003 earnings conference call.
Speaker 1: At this time all participants are in a listen only mode.
Speaker 1: After management gives their prepared remarks, there will be a question and answer session.
Speaker 1: As a reminder, today's conference call is being recorded.
Speaker 1: I would now like to turn the meeting over to your host for today's call, Ms. Vivian Hsu. Please proceed, Ms. Hsu.
Speaker 2: Thank you operator and thank you for everyone for joining So Yung's second quarter 2023 earnings conference call. Joining me today on the call is Mr Xing Jin, our co-founder, Chairman and CEO and Mr Nick Chow, CEO .
Speaker 2: Please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities and the Late Gaseous Reform Act of 1995.
Speaker 2: Forward-looking statements are subject to risks and uncertainties that may cause actual results to defer maturity from our current expectations.
Speaker 2: Potential risks and uncertainties include, but are not limited to those outlining our public filings with the SEC, including our annual report on Form 20-F.
Speaker 2: So Yang does not undertake any obligation to update any forward-looking statements, as required under a people law.
Speaker 2: At this time, I would like to turn the call over to Mr. Xingjing. Test please.
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Speaker 2: Hello everyone. Thank you for joining SOEI on 2nd Quarter 2023 earnings call.
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Speaker 2: We continue to regain solid growth momentum during the quarter with both our financial and operational metrics climbing steadily.
Speaker 2: Total revenue exceeded the upper range of our guidance, increasing 33.3 percentage year-over-year to RMB 412 minutes, a new quarterly high since the beginning of 2022.
Speaker 2: This translates into improving profitability with non-GAAP net income attributable to So Yang of RMB 15.5 million during the quarter, compared with the loss of RMB 22.7 million during the same period last year.
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Speaker 3: Let me now walk you through the progress we made during the quarter.
Speaker 2: faced significant challenges during the pandemic controls in China, but has seen the pace of it probably accelerate during the quarter. The resurgence of confidence among medical aesthetics institutions was driven by the restoration of regular operations at a promising yet gradually increase in spending on medical aesthetics procedures.
Speaker 2: The number of subscribing medical service providers and information service revenue increased sequentially by approximately 21% and 40% respectively. As sentiment among our users makes a gradual recovery...
Speaker 2: Their preference has shifted back towards seeking real-time interaction and customized services.
Speaker 2: Beyond simply acquiring product information and pricing details, demand has diversified requiring additional customer support and services to facilitate the decision-making process.
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Speaker 2: Turning to our products, we also optimized the SoYoung app to improve the user experience, particularly by enhancing algorithms and user recommendations and fine-tuning operations for different demographics based on their in-app behavior.
Speaker 2: These tweaks allow medical settings institutions to identify and target specific users with greater speed and accuracy.
Speaker 2: significantly improving overall customer acquisition efficiency and conversion rates.
Speaker 2: At the same time, the combination of our high quality user content and the powerful network effect our community creates.
Speaker 2: has allowed us to significantly broaden the reach and improve services for use acquired through our own channels, such as our WeChat public accounts and other communities.
Speaker 2: Looking ahead...
Speaker 2: As we continue to execute our diversified brand strategy, we will continue to acquire more users with our premium content, practical tools, and high-quality services.
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Speaker 2: In terms of services, our focus remains squarely on non-surgical medical settings procedures.
Speaker 2: We'll continue to build a network of premier doctors in this segment and strengthen the promotion of our heart SQUs such as the body contour and the protona 4D solution.
Speaker 2: We also launched a Seasonal Beautiful Eye campaign in June . To support these initiatives, we are looking closely with medical institutions to enhance their brand equity and enrich their product offerings.
Speaker 2: Online bookies and JMEs for non-surgical procedures increased by 26% and 52% year-over-year respectively.
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Speaker 3: We hope you will continue to learn more about the future of Chinese technology. We hope you will continue to learn more about Chinese technology. We hope you will continue to learn more about Chinese technology.
Speaker 2: For surgical services, we recently launched a program in partnership with public hospitals where doctors create pre-mental contents and act as ambassadors for eye procedures.
Speaker 2: leveraging the strong relationship we have with pregnant doctors on the esteemed abroad list. We are working together to increase interest, content and awareness of eye surgeries.
Speaker 2: A surgical category that is in high demand.
Speaker 2: Our approach includes in-depth analysis of user performance and real-life cases studies coupled with roll-out AI-powered eye testing tools, which recommended the latest trends in eye shapes.
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Speaker 2: Now I will move on to the progress of SU
Speaker 2: As a proprietary one-stop, non-surgical medical aesthetic solution, So Yung Prime has steadily expanded in size and scale since its launch in last August .
Speaker 2: As of end of the second quarter, So Yung Prime is now partnered with over 140 medical institutions and over 450 doctors in 28 cities, which reflects the progress we have made in ensuring a seamless user experience and enhancing operational efficiency.
Speaker 2: of collaborating institutions. Simply put, So Yung Prime's unique value proposition is its quality and user experience.
Speaker 2: From the strategic screen of doctors, qualifications and their ability to accurately diagnose.
Speaker 2: to their treatment plans and the certainty of their products. We want to ensure that the user experience is flawless.
Speaker 2: For field orders, SoS-prime increased 83% sequentially during the quarter and is increasingly limiting.
Speaker 2: contributes to revenue.
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Speaker 2: While So Yung Prime has already demonstrated so much potential, we have concluded that it is still in the early stages of development.
Speaker 2: We have made significant progress, but there is still plenty of room to strengthen its reputation as a brand of premier and professional light medical aesthetics procedures.
Speaker 2: In addition to broadening and expanding product categories, we want to solidify the association our close partnership with respected doctors have with the uniqueness and specialization of our platform.
Speaker 2: As we have iterated multiple times in recent quarters, the light metacortic segment is critical for our future growth.
Speaker 2: So YAM Prime guarantees a high quality user experience both online to offline through its unique operating model and meticulous creation of products and services.
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Speaker 3: We hope to see you again soon.
Speaker 2: Lastly, I would like to touch on our supply chain business, which includes Wuhan Miracle.
Speaker 2: After years of research across industry developed a deeper understanding of its dynamics, we believe it is ideal time for So Yung to develop new revenue streams along the medical-asseticsouls.
Speaker 2: the assetical industry value chain by offering upstream products.
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Speaker 2: During the quarter, revenue from our supply chain business was RMB 86.3 minutes, an increase of 32% year-to-year, accounting from 21% of total revenue, and increasing contributing to our bottom line. We acquired Wuhan Miracle in 2021, and we are now in the second quarter.
Speaker 2: to tap into the medical laser market as a first step.
Speaker 2: Last year, we expanded further upstream by securing the exclusive distribution rights for the Korea brand R-Riving for their injectable HA fillers.
Speaker 2: Last month we secured the exclusive 10-year distribution rights by Xi Hong by 4 March.
Speaker 2: and new face filler products.
Speaker 2: We have only just begun to explore opportunities by moving upstream with these partnerships and based on their success so far.
Speaker 2: are confident.
Speaker 2: They will significantly enhance our appeal to users and product portfolio in the light medical aesthetic segment.
Speaker 3: Thank you for watching.
Speaker 3: Thank you for your attention.
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Speaker 2: In summary, our legacy business continues to see the pace of recovery pick-up pace which puts us in a position to confidently allocate resources towards new high quality growth ventures such as So Yung Prime and our supply chain business.
Speaker 2: We strongly believe these new ventures reflect the future of the industry and the tremendous opportunities its long-term growth will create.
Speaker 2: Our focus throughout the remainder of the year will be the further driving high-quality growth, reforming operations strategies, enhancing customer acquisition channels, carefully managing costs, and consistently improving our financial performance.
Speaker 2: to create value for all shareholders. I will now turn the call over to our CFO Nick to view the financial results for the second quarter before taking your questions.
Speaker 4: Hello, this is Nick. Please be reminded that all amounts quoted here will be in RMB. Please also refer to our earnings release for detailed information about our comparative financial performances on a year-over-year basis.
Speaker 4: Total revenues during the quarter were RMB $412.1 million, up 33.3% year-over-year, and exceeding the high end of our guidance.
Speaker 4: The increase was primarily due to the increase in average revenue for paying medical service provider and other revenues generated by Sohyang Prime.
Speaker 4: Before I break down revenues further, I'd like to illustrate some financial statement presentation changes we made this quarter to better reflect the development of our strategic upstream supply chain business.
Speaker 4: Starting this quarter, revenue from the sales of medical aesthetic injectable drugs, which has been included in information services and other revenues in previous quarters, is now combined with the sales of equipment and maintenance services revenues. And the new line item is now renamed sales of medical products and maintenance services.
Speaker 4: With this in mind, information services and other revenues were RMB 298.9 million, up 40.2% year-over-year, primarily driven by an increase in average revenue per paying medical service provider and other revenues generated by So Yung Prime.
Speaker 4: Reservation services revenues decreased.
Speaker 4: 12.1% over year to RMB 26.9 million primarily due to the operating stress rate which gives higher subsidies to end users.
Speaker 4: Sales of medical products and maintenance services revenues, or RMB 86.3 million, are 32.0 percent over year, primarily due to an increase in sales of both equipment and injectable drugs.
Speaker 4: Cost of revenues, or RMB $150.4 million, are 43.9% year-over-year.
Speaker 4: The increase was primarily due to an increase in cost associated with the So Yum Prime and the Wuhan miracle.
Speaker 4: Once again, the financial reporting changes I mentioned before also apply to cost of revenues.
Speaker 4: Within cost revenues, cost of services and others were RMB $106.5 million, up 54.4% year-over-year, primarily due to an increase in costs associated with the So Yum Prime.
Speaker 4: Cost of medical products, blood salt and maintenance services will RMB 43.9 million, up 23.6% year-over-year, primarily due to an increase in costs associated with the Wuhan miracle.
Speaker 4: Total operating expenses for RMB 280 82.4 million are 14.5% year-over-year.
Speaker 4: Sales and marketing expenses were RMB 137.9 million, up 13.3% year-over-year, primarily due to an increase in expenses associated with branding and user acquisition activities.
Speaker 4: G&A expenses for RMB 92.3 million are 49.4% year-over-year due to an increase in payroll costs associated with the expansion of administrative employees to support business upgrades and new strategic businesses.
Speaker 4: R&D expenses were R&D 52.1 million, down 17.4% year-over-year, primarily due to improvements in staff efficiency.
Speaker 4: Income tax benefits were RMB 0.8 million compared with income tax benefits of RMB 0.1 million in the second quarter of 2022.
Speaker 4: Net loss attributable to Soyang price of RMB 2.6 million compared with net loss of RMB 32.3 million during the same period last year.
Speaker 4: NAGAP net income attributable to So Yang was RMB 15.5 million compared with RMB 22.7 million NAGAP net loss attributable to So Yang in the same period of 2022.
Speaker 4: Basic and diluted loss per ADS attributable to ordinary shareholders were RMB 0.02 and 0.02 respectively, compared with basic and diluted loss per ADS attributable to ordinary shareholders of RMB 0.3 and 0.3 respectively.
Speaker 4: during the same period of 2022. Net increase in cash and cash equivalents, restricted cash, and term deposit. Short-term investments in this quarter is RMB 56.3 million and net cash inflow from operating activities this quarter.
Speaker 4: is RMB 90.9 million. We have ample cash on hand with total cash and cash equivalents, restricted cash, and term deposits. Term deposits and short-term investments of RMB 1.5 billion as of June 30, 2023, compared with RMB 1.6 billion.
Speaker 4: as of December 31, 2022. For the third quarter of 2023, we expect total revenue to be between RMB 380 million and RMB 400 million. The above outlook is based on our current market conditions that reflect the company's preliminary estimates.
Speaker 4: market and operating conditions and the customer demand. This concludes our key remarks. I will now turn the call to the operator and open a call for Q&A.
Speaker 1: We are ready to take questions. Yes sir, thank you. If you would like to ask a question, please press star then 1 on your telephone keypad.
Speaker 1: If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.
Speaker 1: To withdraw your question, please press star then 2.
Speaker 1: Once again ladies and gentlemen, that's Star of the One if you have a question.
Speaker 1: Today's first question comes from Thomas Chong at Jeffries. Please go ahead.
Speaker 5: Hi, good evening. Thanks, management, for taking my questions. I have two questions. My first question is about what's the major driver behind the significant growth in revenue in Q2, and where do we expect the medical aesthetic market to trade?
Speaker 5: We hope to see you again soon. Thank you for your attention. Nep incrediblyizzle
Speaker 5: And my second question is about the reason for the significant narrowing of the net losses in both a year-on-year and on a sequential basis. Where should we expect the profitability trend in the second half? First of all, we will have increasedFRD equity increases
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Speaker 2: Thanks so much. Let me translate and get back to you soon.
Speaker 2: The Q2 results were better than expected, allowing us to regain a growth trajectory. Total revenue was RMB $412 million in case of over 30% both year-over-year and sequentially, and a new quarterly high since the early 2022.
Speaker 2: On the user front, we launched a seasonally beautiful eye campaign in June leveraging content from our community and the popular SKU to promote summer steals including products for eye anti-age, contour rating, winkles, and slimming among others.
Speaker 2: The number of purchasing users increased by 24% year-over-year, and GMV increased by 40% year-over-year in Q2 as a result reflecting strong demand.
Speaker 2: On the institutional fund, sentiment has improved as it gradually increased spending on information services products and overall marketing. During the quarter, we optimized our infrastructure for algorithms and user recommendations to help institutions improve user acquisition.
Speaker 2: and operational efficiency. Lastly, we also benefit from an increasing diverse stream of revenues. Revenue from our upstream supply chain business increased by 32% compared to the same period last year.
Speaker 2: contributing 21% of total revenue. Having only launched about one year ago, it's impressive to see So yeah Prime increasing beginning to contribute to revenue.
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Speaker 2: Despite uncertainties and volatility in the market, we will maintain growth momentum and adjust our strategy according to market dynamics. At the same time, we will continue to build a developed infrastructure that will allow us to expand both upstream and downstream on the value chain. Thank you.
Speaker 4: I think the increase in our net profit and the narrowing down of the net loss is mainly due to the combined impact of the increase in revenue and the improvement in operational efficiency.
Speaker 4: the operational operating loss narrowed by over 35% by year-over-year and sequentially.
Speaker 4: On non-GAAP basis, we were profitable with net income of RMB 15.5 million during the quarter and net income of RMB 12.7 million in the first half year of 2023, compared to a loss of RMB 20...
Speaker 4: 2.7 million and the loss of RMB 17.9 million in the same period last year. Looking forward, we'll continue to grow revenue, improve operating efficiency, and create more profits for the company and our shareholders.
Speaker 4: a loss of RMB 17.9 million in the same period last year. Looking forward, we'll continue to grow revenue, improve operating efficiency, and create more profits for the company and our shareholders. Thank you.
Speaker 1: Thank you. And our next question today comes from Li Ying with Hightong Securities. Please go ahead.
Speaker 2: Hi, good evening and thanks for management taking my question. I would like to say congratulations first on the growth momentum and the improved profitability in this quarter. I have one question about MAEU. What's the estimate for future MAEU trend? Thank you.
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Speaker 2: Thank you. In Q2, the number of purchasing users increased by 24% year-over-year, while GM increased by 40% year-over-year. With demand gradually growing, conversion rates from MUE is also improving.
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Speaker 2: Traffic on our platform is mainly generated from these three sources, So Yang app, private domains, and other operational channels. We are confident that traffic will continue to grow.
Speaker 3: Thank you for your patience and your participation in the
Speaker 2: Firstly, the MAU matrix disclosed in the early release reflects traffic from the SoYaN app, which is expected to continue being the primary source going forward.
Speaker 2: We will continue to attract more organic user traffic through community content operations.
Speaker 2: like the media and improving engagement with innovative tools.
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Speaker 3: We hope to see you again soon.
Speaker 3: Thank you for watching and have a good day!
Speaker 2: Secondly, for those trafficked from private domains, we are developing strategies to improve user conversion, and we will leverage experience we have gotten from Suyam Prime and apply this to other businesses as well.
Speaker 3: That's it for this session.group Thank you for watching.
Speaker 2: For traffic from other channels, we will maintain a cautious approach when it comes to spending on marketing.
Speaker 2: We are placing more of an emphasis on content operations and leverage our competitive advantage in rolling out content to drive conversion rates, although in little wrap book price shows while at the same time acquiring more users through live broadcasting. We will also attempt to introduce links to our platform.
Speaker 2: in channels to expand direct user conversion channels.
Speaker 2: channels to expand direct user conversion channels.
Speaker 3: the conversion channels.
Speaker 1: Thank you. That's all. Thank you. And our next question today comes from Katerina Shue with City Group. Please go ahead.
Speaker 6: Hi, thanks management for taking my question. This is Katrina from CTF King on behalf of Nelson Jern. Can management share with us more about the progress of the show-run plan in second quarter and the trend in the second half of the year? Can management share with us more about the progress of the show-run plan in second quarter
Speaker 6: Thank you for your attention.
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Speaker 2: Since LY for question. It has been just one year since the nounure of soyum prime last August . Over the past one year we streamlined the process and adjust operational strategies. Where building soyum prime out to scale was one year of operational history behind us.
Speaker 2: So Yum! Prime now covers over 140 institutions in 28 cities, providing a premier service experience for a large number of users.
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Speaker 2: As a one-stop, non-surgical, medical settings solution, we established in cooperation with institutions, So Yang Prime is still in the early stages of development.
Speaker 2: We launched a series of promotional campaigns in Q2 to gain significant mileshare among users.
Speaker 2: strengthen its brand and recognition as a professional non-surgical medical settings platform, and steadily expand its size at reach. In each Q1 and Q2 of this year, fulfilled orders through So Yung Prime increased by over 80% sequentially, building upon seven Gross flyers from 14 because of wide welcoming attention and equal recognition. You capture both this year's product along with many inspiring factors into a new derivative with a closely related focus on any health,
Speaker 2: sound word of mouth. In Q2, revenue generated by Sooyoung Prime began increasingly contributing towards revenue.
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Speaker 2: Looking forward to the second half of this year, So Yum Prime will continue to strictly assess the quality of institutions and services on the platform as it grows in size, improve the operational efficiency of participating institutions.
Speaker 2: and strengthen its professional non-surgical medical aesthetics brand image.
Speaker 3: We are also exploring opportunities to build partnerships with upstream players.
Speaker 2: allowing the supply chain to reduce product operating costs, improving operational efficiency, and extension of synergies between our various segments.
Speaker 1: Call the ICC. Thank you. Thank you. And our next question today comes from Chloe Wei with CICC. Please go ahead.
Speaker 2: Okay, thanks management for taking my question. So my question is for Nick and could you give us some color on the reason for the over year decrease in the growth margin and as well as the trends so as going on. So, at leastEE for your potential in oneAnd for carbon capture, we would like to know what is the state of the coupons? Someone's coming in fear of the pandemic.
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Speaker 4: Okay, thanks for your question. The decrease in gross margin was mainly due to changes in our revenue mix. In Q2, 2023, our information and reservation services maintain high margins. The gross margin for sales of medical products and maintenance services is lower than our information and reservation services.
Speaker 4: Our So Yum Prime visit is due in the early stage of development with the local growth margin. In addition, we launched promotional campaigns for So Yum Prime during this quarter, resulting in a decrease in growth margin.
Speaker 4: In the short term, we expect growth margins to remain at approximately a similar level as we continue to invest in 3M Prime promotional activities and expand sales of medical products and maintenance services. As we build our supply chain capabilities, we will continue to invest in 3M Prime promotional activities and expand sales of medical products and maintenance services.
Speaker 4: and operational efficiency improvements for ZwianPrime at scale. Cross margins will begin improving again.
Speaker 1: Thank you. Thank you. We are now approaching the end of the conference call.
Speaker 1: Thank you for your participation in today's conference.
Speaker 1: You may now disconnect and have a good day.
Speaker 7: And PLE.